10. Jo quit her job at Umass where she earned $85,000 a year. She cashed in $200
ID: 1146298 • Letter: 1
Question
10. Jo quit her job at Umass where she earned $85,000 a year. She cashed in $200,000 in corporate bonds that earned 3% interest annually to set up a gym. Jo has decided to buy a store front and set up exercise classes. There are 800 people who will pay $1000 a year for unlimited classes; $700 from each person goes for instructors maintenance, equipment, insurance, depreciation etc. Write your answers to the following questions on the answer sheet. © 2017 Joanne Spitz A. What are Jo's total revenues? (3 pts) B. What are Jo's explicit costs? In numbers (3 pts) C. What is her accounting profit? Numbers (3 pts) D. List 2 important implicit costs that Jo has not included. (in numbers 3 pts) E What is Jo's pure economic profit (loss)numbers? (3 pts rchExplanation / Answer
Answer:
Explicit cost can be defined as the cost which the firm pays to outsiders for their using factors of production.
Implicit cost is an implicit cost which the firm owner has forgone because he has used his own resource in his firm but does not pay anything. It means the implicit cost is an opportunity cost which a firm owner has lost because he is using it in his firm instead of renting it out to others and does not get anything for it.
A.
Joes total revenue = number of people* fee per people
= 800*1000
=$800,000
B.
Jo explicit cost =$700 ( payment to outsiders for their goods and services.)
C.
Jo's Accounting profit =TR -explicit
=$800,000 -$700
=$799,300
D.
Two implicit cost are;
1.Jo has forgone salary which he could earn =$85000 per year.
2. Lost interest on the $200,000
Interest = 3% of 200000
= 3/100* 200,000
=$6000
Total implicit cost = 85000+6000
=$91000
(e)
Economic profit =TR - ( explicit cost + implicit cost)
=800,000 - (700+91,000)
=800,000 -91,700
=$708,300
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